Crude delivered by rail continues to supply West Coast refineries

The US Energy Information Administration (EIA) has suggested that examination of its own data reveals that there is a growing supply of crude to the West Coast (PADD 5), that is not explicitly accounted for by production, imports, or movements from other PADDs via pipeline, tanker or barge.

Based on data and information published by the California Energy Commission (CEC) and on information published by US West Coast refiners on crude volumes moving by rail, a significant portion of this growing unaccounted-for crude is delivered via rail to West Coast refineries. Through July of this year PADD 5 unaccounted-for supply has averaged 191 000 bpd, representing nearly 8% of regional supply.

Through 2011, the 15 year average unaccounted-for crude supply was 24 000 bpd, meaning that crude supply and demand were more or less evenly balanced. During that time, PADD 5 refinery runs averaged 2.4 million bpd and unaccounted-for supply rose 59 000 bpd in 2012 and reached 113 000 bpd in 2013, representing 3% and 5% of demand, respectively.

Publicly available information, e.g. US Securities and Exchange Commission (SEC) filings, confirms that crude by rail movements to the West Coast have increased. In June, Tacoma Rail, a shortline railroad that is operated as a public utility and owned by the city of Tacoma, reported to the state that it moved three trains of Bakken crude per week, totalling between 27 000 – 36 000 bpd for the month to refineries in Washington.

BNSF Railway, in a disclosure on crude by rail movements transiting the state of Washington, has indicated movements of 50 000 – 100 000 bpd. According to BNSF’s website, they can move crude to eight facilities in PADD 5 including Fidalgo, Arco, Tacoma and Port Westward in Washington, and Sacremento, Richmond and Bakersfield in California, with additional sites under development in both states.

Tesoro’s SEC Form 10-Q filing for the period ending 30 June 2014 reports acquiring a rail loading and unloading facility, and four storage tanks with a shell capacity of approximately 1.5 million bbls located at its refinery in Anacortes, Washington and a truck terminal and rail loading and unloading facility at its Martinez, California refinery. According to data from the CEC, 2014 crude receipts by rail have averaged 17 000 bpd through July, with approximately 40% coming from Canada.

As PADD 5 rail receipts of crude oil increase, other West Cost crude supply dynamics are changing. While total US crude production has increased significantly in recent years. PADD 5 output has declined. According to the EIA, driven primarily by decreasing Alaskan production, PADD 5 output has fallen by 225 000 bpd since 2008 and has averaged 1.1 million bpd so far this year. As Alaskan production declines, Washington and California are 122 000 bpd and 60 000 bpd lower than 2008 averages, respectively. Given this trend, other sources of supply, primarily other domestic sources, have become important.

West Coast crude imports have also declined, the EIA indicates, but not by as much as production. After reaching a peak of 1.2 million bpd in 2008, PADD 5 imports fell more than 100 000 bpd to 1.1 million bpd in 2013 and have remained in that range so far in 2014. The crude quality mix of imports has shifted slightly as the overall volume has decreased. API gravity of imports has not changed significantly, with heavy barrels (API gravity less than 35) still comprising approximately 80% of imports. But the sulfur content of imports has increased, with sour barrels accounting for 80% of imports so far in 2014, up from 66% in 2010. Heavy sour barrels (with API gravity less than 35 degrees and sulfur greater than or equal to 0.5%) accounted for 63% of regional imports in 2013, up from 53% in 2010. Refineries can blend the heavy, sour imports with the light, sweet barrels from the Bakken to get a crude blend that is similar in quality to Alaska North Slope crude oil.

With no pipelines available to move crude oil to the West Coast from other parts of the country, crude by rail is likely to remain a viable transportation option for market participants to move Midcontinent crude oil production to PADD refineries, as long as Midcontinent crude prices remain relatively attractive, the EIA holds.